NEW DELHI: Early updates for the June quarter by at least five banks have given credence to the Reserve Bank of India’s monetary policy committee members’ recent remark that “the biggest toll of the second wave is in terms of a demand shock”.
On Monday, India’s most valuable lender HDFC Bank said it has seen a 30.24% quarter-on-quarter contraction in retail disbursement in the June quarter, primarily due to the adverse impact of the second wave, resulting in the outstanding retail loan book to contract 1% sequentially.
For Yes Bank, retail disbursement during the quarter under review fell 34.86% over the March-ended quarter. The dent is much deeper for Yes Bank as it saw a decline in the overall loan book even compared to the low base of last year which was hit hard by a stricter lockdown. Others including Federal Bank and CSB Bank, too, saw their loan books contract 1.56 per cent and 3.52 per cent, respectively, on a sequential basis. IndusInd Bank saw its net advances fall 1 per cent in Q1 FY22.
When the first wave of the pandemic subsided, the economy recovered quickly and much of it due to pent-up demand and higher discretionary consumption.
In fact, demand jumped so sharply that India registered GDP growth after just two-quarters of contraction — an impressive feat for a country that had been under lockdown for months. Loan demand exhibited signs of revival during the fourth quarter of 2020-21, especially in the share of new loans in total loans.
Agriculture and personal loan books remained bright spots recording double-digit growth. However, the second wave ravaged family budgets, with many forced to divert their money towards rising healthcare costs. Besides, higher inflation among all categories, skyrocketing retail fuel prices coupled with weak sentiments and lower income resulted in slackening consumption that overshadows the base effect.
The impact of the new devastating wave, which is clearly visible in the provisional loan growth numbers revealed by banks, however, is likely to remain limited to the June quarter.
In a regulatory filing, HDFC Bank said growth in its aggregate advances came in at Rs 11.47 lakh crore at the end of June 2021 quarter, a growth of nearly 14.4% over the same quarter in the previous year. Overall loan growth rose a modest 1.3% over a strong base of the March quarter. Retail disbursements during the quarter suffered, as it came in at Rs 43,600 crore, lower than Rs. 62,500 crore disbursed during the previous quarter primarily due to the adverse impact of the second wave. It, however, saw an expansion when compared to the washout June quarter of FY21.
That apart, corporate loans, too, saw a tepid 1.5% quarter-on-quarter growth, while commercial and rural banking loans grew by 4%.
The impact on retail loans comes even as the bank strives to come out of the RBI ban on fresh card disbursal. But, it is unlikely to have impacted the lender significantly since the majority of the business is sourced from existing customers. With steady double-digit growth in aggregate advances over the low base of last year, the second-largest private sector lender was able to tide over the second wave better than smaller peers.
For instance, Federal Bank saw a 8% year-on-year growth in the June quarter, while IndusInd Bank saw 7% growth in net advances. Thrissur-based CSB Bank, meanwhile, saw a 24% rise in loan growth when compared to the last year. Its advances against gold were at Rs. 6,121.27 crore in Q1 FY22, increasing by a whopping 46.2%.
For Yes Bank, however, even this optical improvement didn’t come as a relief. The private lender reported 0.4 per cent year-on-year contraction in its overall loan book to Rs. 1.64 lakh crore, while sequentially the loan book saw a degrowth of 1.8 per cent in a seasonally weak June quarter from Rs. 1.66 lakh crore of the preceding quarter. Further, the bank disbursed Rs. 5,099 crore worth of retail loans in the June quarter against Rs. 7,828 crore in the March quarter.
“For the banking industry, the incremental credit growth during April to June period of FY22 stood at -0.4% as compared with -0.8% in FY21 and 0.1% in FY20. This indicates that the incremental growth has been better than last year but is yet to return to normal," analysts at Care Ratings wrote in a recent note. Going forward, the credit growth for FY22 is likely to remain in low double-digit.
But, muted economic activity and threat of a third wave could further delay the anticipated pick-up in credit growth despite the availability of ample liquidity in the banking system and lower interest rates. It's not just borrowers who have remained risk-averse and unwilling to raise debt, but banks have been selective in giving fresh loans due to asset quality concerns as well.
“Over recent years, the share of the industrial sector in total bank credit has declined whereas that of personal loans has grown” the central bank said in its latest Financial Stability Report (FSR), warning banks on risks in retail lending amid slowing economic activity and negative consumer sentiment.